OTR figured into developments at NCUA Board meeting, too

JULY 23, 2015 -- Earlier Thursday, the NCUA Board approved two final rules and reprogrammed the agency’s 2015 operating budget – action that also saw the OTR figure into developments.

The board unanimously approved final rules on fixed assets for federal credit unions (by removing the 5-percent aggregate limit on fixed-asset investments), and on amending the agency’s capital planning and stress testing rule to set new deadlines for various activities in the annual planning and testing cycle.

However, in reprogramming the agency budget, the board split– on a vote of 2-1 – over a net reduction of overall expenditures of more than $1.3 million for the remainder of the year. In making the adjustment, NCUA staff noted that that $1.3 million reduction to 2015 operating budget will offset 2016 resource requirements. Further, they pointed out, federal credit unions will see a reduction in operating fees in March 2016.

Voting against the change was Board Member Mark McWatters, who read a statement noting a variety of concerns. Those included: Dismay at the increase in the budget, the historic climb in the Overhead Transfer Rate (OTR) over the past several years, and “certain aspects of the budgetary process employed by NCUA, including the failure of the agency to submit the OTR methodology for public comment under the Administrative Procedure Act (APA).”

McWatters expanded on his comments about the OTR in footnotes to his statement. Among the points he listed in the footnote referring to the OTR:

NCUA should draft and submit a formal OTR regulation for a 90-day public comment period in accordance with the APA.

Determination of the OTR is of material consequence to both federal and state chartered credit unions; it is surprising that NCUA has drafted and implemented the rule based upon advice from two accounting firms, yet without comment from the credit union community.

The determination of the OTR is essentially a legal construct and requires the sophisticated analysis of statutes, regulations, and case law which lies beyond the operational mandate of accounting firms, even highly regarded, top-tier firms.

NCUA is a federal regulator and should develop and implement policies in an impartial manner, yet the inexorable increase in the OTR over the past several years generally favors federally chartered credit unions. This creates the appearance of a conflict of interest between a federal regulator and federally chartered credit unions to the particular detriment of state chartered credit unions.

“I also think further consideration needs to be given to how funds from mid-year budget reductions are allocated and whether they should be used, at least in part, to address OTR issues directly, rather than routinely applied to reduce operating fees to benefit just one group of credit unions,” McWatters stated. “In any event, in order to negate the appearance of a conflict of interest, follow the letter and spirit of the APA, and respect the dual charter system, I encourage NCUA to submit, without hesitation, the OTR as a proposed rule for public comment under the APA.”

The NCUA Board Member specifically pointed to the NASCUS legal analysis of the OTR concluding that the determination of the OTR is subject to a notice and comment requirement under the APA.